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Why the market may be underpricing fear

Lawrence Lewitinn
Talking Numbers

Is the market too complacent?

Right now, it looks like fear has been in a little bit of a bear market, at least when measured by the CBOE Volatility Index, or "the fear index" as it's affectionately called.

The index basically measures the cost of insuring stocks against a fall, and from the looks of it, the market isn't all that fearful. As of Thursday, the VIX was trading around 13. Just two weeks ago, it was as high as 17 and, in early February, it was above 21.

(Read: Stocks end lower ahead of jobs report; Dow, S&P retreat from record highs)

That may not be a good thing. The VIX and stocks tend to move inversely. Often times, a low VIX can signal complacency. And despite some global turmoil, judging by the VIX, investors don’t seem that concerned.    

"Trading the VIX has really been tough," says CNBC contributor Andrew Busch, editor and publisher of the Busch Update. "People have been trying to buy breakouts on this, expecting bad things to happen like the Ukraine."

However, those expecting the VIX to break above the 21 handle have thus far been disappointed. Busch notes that the VIX has stayed well within a range of between 21 and 11 for the past couple of years, a far cry from exactly four years ago when it hit 48.2.

CNBC contributor Gina Sanchez, founder of Chantico Global, said that although issues such as shake-ups in emerging market currencies and the Crimea crisis have caused the VIX to spike ever so slightly, the market is still pricing risk down.

(Read: 1Q 2014: Fighting the tide aided fund investors)

"They're ignoring [risk issues] and they're looking towards the fact that we're coming out of a cold weather spell that has kept macro data down," said Sanchez. "That macro data is starting to pick back up. We're starting to see better jobs numbers. The general positivity in the markets is basically causing the markets to underprice risk."

Sanchez believes the market is underestimating risk at a time when she thinks stocks are fully priced if not slightly expensive.

"Any of those risks could actually have a devastating effect on the markets," said Sanchez. "That's why it's important to watch the VIX when it gets this low."

To see the full discussion on the VIX, with Busch on the technicals and Sanchez on the fundamentals, watch the video above.